Capex expenses

[Jean Paul Rousseau]

For buy and hold investors, to analyze your return, you have to take into account the capex expenses. I really don't know how to handle it.

In a recent post, Brandon Turner estimated that 182 $ per month have to be put aside for a typical SFH with a 1000 $ monthly rent. That represent a 18% cost which is pretty high and not sustainable in my case.

In another blog for a similar property he takes a 5% estimate for capex expenditure, which is not compatible with the first number at a first glance.

I understand that capex increase when the house get older. So if both those numbers are valid guidelines that means that you start with very few capex expense when the house is fully rehabilitated and you finish with more than 30% after 20 years, which seems not bearable.

The conclusion I make from those numbers is that the buy and hold long term strategy is not valid, it seems better to buy rehabilitated houses and sell them after 10 years.

Does I am wrong somewhere ? I will be glad to hear what more experimented members think of it.

Hope to hear from you.

[Gino Barbaro]

@Jean Paul Rousseau@Jake Stenziano

Hi Jean Paul

I estimate cap ex to be around 250 per unit for multi families.  If i have a 10 unit building, I will set aside 2500 per year. Banks will want to see this, especially if you go to refinance.

Cap ex is just an estimate.  Look at all the individual components, roof, driveway, heaters, etc and try to estimate useful life and then replacement cost.  You can arrive with a number and try to annualize the number.

Cap ex is a line item after NOI, does not affect value of the property and is used to upgrade your property. It is a subjective number, just make sure to allocate funds or else you may be caught with a major repair and no money. I know that feeling, and it isn't a good feeling.

Good Luck